Ed Jones (00:03):

Now the IV fluid situation is fairly unique because there’s really not another product category that comes to mind where you have 60% of the demand getting served out of one unique location. But what COVID did teach us, is we started diversifying a lot of our supplier base to give us a little more redundancy in business continuity in a lot of areas that we could, and I think a lot of healthcare systems started forging ahead, working with their GPOs to do that.

Narrator (00:35):

Welcome to Hospitals In Focus, from the Federation of American Hospitals. Here’s your host, Chip Kahn.

Chip Kahn (00:45):

Today we’re diving into a topic that truly embodies the words mission-critical, the healthcare supply chain. We often throw around such words, but when it comes to the complex infrastructure that enables medical supplies to reach our hospitals and patients, mission-critical barely scratches the surface. Recent events have underscored how vital but fragile this system can be. Hurricane Helene devastated communities throughout Southeast and mid-Atlantic, and that devastation included severe damage to a key manufacturing plant that supplies 60% of the nation’s IV solutions. This point of failure sent shockwaves through the entire healthcare system, reminding us that our supply chain is not just a chain, but a network that frequently is dependent on a limited number of manufacturers and suppliers. So how do we prepare and hopefully plan to avoid such disruptions? Part of the solution are group purchasing organizations, or as they’re known, GPOs, that play a central role in our preparedness and resilience. To help us navigate this difficult and concerning topic, I’m joined today by an expert on healthcare supply chains and GPOs, Ed Jones, President and CEO at HealthTrust Performance Group. Thanks for joining us today, Ed.

Ed Jones (02:09):

Chip, it’s a real pleasure to be here, and thanks for having me.

Chip Kahn (02:12):

Just to get started, Ed, and to lay a base for our discussions, since all of our audiences may not be familiar with GPOs and the role they play, can you just give us a definition and describe a GPO’s function and what they do for hospitals?

Ed Jones (02:29):

Yeah, happy to, Chip. So the way to think about a GPO, it’s the ability to aggregate purchasing volume across a network of hospitals to really be able to scale up a committed buy. And in exchange for that, you’re able to receive significant discounts from the manufacturer. And so when you think about the acute-care healthcare systems across the U.S., it’s a pretty fragmented market. And you think about, the largest healthcare system represents only about 5% of the healthcare market. So the ability for healthcare systems to partner through a GPO of all sizes to access scale that otherwise they could not do on their own, in my mind, is really just the fundamental basic principle of what a GPO allows them to do. So hospitals are able to combine their volume with others, and in exchange for doing that, are able to negotiate better discounts and better terms and conditions for their contracts.

Chip Kahn (03:28):

So I guess in terms of healthcare and what patients see, the GPO in the sense is behind the curtain, but I guess during COVID-19, during the pandemic, and we’re going to talk in a few minutes about Hurricane Helene, the role of GPOs and the concerns about supplies became something that made the evening news, people were aware of. Can you talk a bit about how this concern about the supply chain has been evolving, and how what we experienced in COVID-19 pandemic relates to what we’re experiencing right now with the result of Hurricane Helene in terms of IV solutions?

Ed Jones (04:10):

Well, it’s a great question. It’s funny, Chip, obviously we’ve been doing this a long time, and I remember talking to different healthcare leaders in other healthcare systems, said that a lot of times the executive suite did not take as much of interest in supply chain, because it just worked to your point, behind the curtain. And so didn’t really have to spend a lot of time on it. And then during COVID-19, and the impact to the global supply chain, it was on full display of just how important in the role that it plays inside the healthcare ecosystem. And I think that that’s a good thing, because what it really did, I think highlighted for everyone that… So within the healthcare system, what really revealed itself is just how critical the supply chain is on a global stage. So when you think about COVID-19, what we have never faced before is disruption of the manufacturer base in China, and then globally across the world, the impact that COVID had on the workforce, the shutdowns, the disruption of raw-material production and the like. And so it really put a real big spotlight on just how fragile the supply chain can be when impacted with something like the COVID-19 virus.

(05:27):

And so for me, as I reflect back during that time, we were fortunate in the fact that we had an office in Shanghai, China that really gave us really eyes and ears on the ground during that period of time. And so we were able to really start to understand the supplier base and what was happening, not on the news per se, but really understand what was happening live and in color. And it allowed us to start positioning and recovering the supply chain maybe a little quicker than others. And I think the thing that we learned during COVID was that there was a huge focus around conservation, and we had to get really good at conserving things like PPE, later it was lab supplies, then at one point it was bulk oxygen.

(06:15):

So you had this cascading effect across the supply chain, that as we learned more about how to treat the virus, new demand was placed on different products and services that you needed to take care of the patients. And we had to get really good at conserving and driving demand down to give the supply chain and the supplier side a chance to catch up. And I think that when we look back, some of the work that was done, I think GPOs played a critical role in being able to navigate that landscape and find alternative products, really stretch, because this became a global challenge, because everybody in the world was searching for the same thing. And if you could imagine, if there’s 5,500 hospitals, not counting the non-acute-care setting, that’s a lot of people trying to do this on their own. And so the GPOs played a really key role in being able to represent large portions of the healthcare market in order to try to expedite solutions around finding product.

(07:20):

At the same time, one of the things that we did inside HealthTrust is that we created a lot of clinical guidelines and documentation and conservation practices, and we build them as toolkits or playbooks. And so they’re not policies, they’re more about step one, step two, step three. And then we shared that across our membership and try to arm them with ways to navigate what I’ll call the early part of the COVID-19 environment. If you think about the parallels to that, to what we just went through on the North Cove Baxter plant, again, it highlights how vulnerable in some cases where the manufacturer base is very narrow and you don’t have a lot of manufacturers in the space. And this is a great example of that, as you mentioned in your opening remarks, Baxter represents 60% of the U.S. healthcare IV fluid market. And when you have that disruption occur like it did as a result of the hurricane, it’s put a lot of stress on the healthcare providers to really focus on conservation.

(08:32):

What I will say, and I think one of the things that we’ve learned, is that a lot of the things we did in the early part of COVID around utilization, we almost built a capability inside the healthcare system on how to respond and react to situations like this where we had to learn how to conserve products. And if you actually go back to 2017 when the hurricane hit Puerto Rico and disrupted another large manufacturer, Baxter actually, but it was their manufacturing plan in Puerto Rico, we actually instituted a lot of conservation measures during that time. And so when this time occurred, we were able to pull and draw upon that experience, refresh those conservation measures, actually approve upon them. And then based on the same methodology and approach we deployed during COVID around utilization of PPE, we applied those same principles inside the IV fluid component of the healthcare supply chain.

(09:30):

So what it really did, if you take that lesson learned, it allowed us to react much quicker versus not having built that muscle memory, if you will, from the COVID experience, it allowed us to move a little quicker. And that’s where we are today. And I think that just like we did during COVID, started evaluating critical supply situations where you didn’t have a lot of choices, and a lot of work has been done, I think the IV fluid situation here, you’ll see a changing in the landscape going forward on the IV fluid market.

Chip Kahn (10:03):

So what you’re describing is the development of a playbook for mitigation. Is it possible that services that hospitals and obviously the healthcare system provides that are so complex and include so many inputs, as you described, is it possible to prevent these kinds of lurches when something happens, or is there just too many variables and you just have to be ready and have a playbook like you’re describing?

Ed Jones (10:34):

It’s a really good question, Chip. I think that a couple things come to mind. I think one, and we started doing this as a result of COVID. So we started using a technology platform to start mapping where raw materials, where sub-assembly was taking place, where finished goods and factories were located across the globe in producing the products that we consume. And this software platform takes a lot of external factors that are going on, a war, for example, factory fires, those kinds of things. And what it started to do for us is give us visibility to potential disruptions when they start to occur. Now the IV fluid situation is fairly unique because there’s really not another product category that comes to mind where you have 60% of the demand getting served out of one unique location, but what COVID did teach us, is we started diversifying a lot of our supplier base to give us a little more redundancy in business continuity in a lot of areas that we could. And I think a lot of healthcare systems started forging ahead working with their GPOs to do that.

(11:43):

And I think what we learned is that product availability to some extent was more important than clinical preference. And I think that was another thing that learned through this whole process. So as I think about the IV fluid market, that’s a little more complex given the regulatory environment that exists, the capital commitment requirements, et cetera. But I think there’ll be definitely a huge focus inside the healthcare community, they’ll look at ways for redundancy, diversification of their fluid needs, et cetera. And I think that’s going to be really important. One of the key takeaways that we’ve had in working with some of the healthcare providers is identifying what we’ll call the never-out products, and starting to build a list of those. And the list is quite long, but trying to at least explore ways to mitigate a potential impact of an event that could occur similar to the IV fluid situation.

(12:46):

And so we’re getting pretty granular on that, and I think you’re going to see more healthcare systems actually demand that from their GPOs, because I think what we’ve all learned through all of this is that we definitely have a global economy, and the world’s gotten a lot smaller, and events happen across the globe, they could impact things that happen here, just like things that happen here, like the situation in North Carolina, also impacts us. So we’ve got to have a much broader view of the supply chain. And I think that through technology and working with our supplier partners, I think that we’ll continue to get better, and we certainly have since COVID, but I think there’s still a lot more work to be done.

Chip Kahn (13:30):

Hospitals have really made a big attempt to be more efficient over time. And you play a role in this, and I assume that part of that is just-in-time inventory to provide the services and care that’s needed. Are you all re-examining that, and what kind of storage and inventory there is, either that you’re involved in the private sector broadly, or that individual hospital systems need to start taking into account?

Ed Jones (14:02):

Yeah, I think that to your point, just in time has been what I’ll call the method that a lot of healthcare systems have used over the last 20, 30 years. And COVID exposed that a little bit, because you didn’t have the reserve inventory. And so after the COVID event, I think people started generally building back some inventory, they were asking, if they use a distributor, a distributor carries some more inventory, et cetera. And within part of our membership, HCA Mercy and a few others, they have their own distribution network that allows them to manage probably a little more effectively on that. But I think that what happened recently though over the last couple of years as a result of inflation and the cost of capital, people started really re-examining their inventory levels and started working those back down to try to be more efficient in running their supply chain.

(14:59):

And I think that this event, again, will probably highlight the need to re-examine some of that, and either people will start to invest more in their own infrastructure, or I think that, when you think about the relationships between GPOs, hospitals and distributors, there’ll be what I’ll call probably a more stringent criteria around inventory-carrying levels, what’s sequestered for specific customers, etc, because there’s a lot of capacity in the marketplace for distribution. And I think that being able to focus on specific criteria and putting a huge service component around that element of a distribution agreement is going to be probably front and center of the conversation moving forward.

Chip Kahn (15:49):

Is there a role for the government here in terms of stockpiling or other kinds of rules?

Ed Jones (15:56):

I think the stockpiling is a good thing. I think that the natural stockpile, what we found during COVID, hadn’t really been accessed. And so there was a lot of a product that had been, either it was either obsolete, had expired, wasn’t in good working order. And I think that the government, through the COVID process and in post-COVID, has spent time, energy, and effort to make sure that the stockpile is rotated, that the product has the integrity necessary to be used in a patient-care setting. What’s interesting is that IV fluids is not one of those items. And I think that where the government can play a bigger role is helping and working with healthcare systems and organizations like the Federation, the AHA and the like to identify those critical products, and then evaluate the supplier base. And when we have constraints like we do, for example in IV fluids, that the government uses their stockpile capabilities to create some room and some safety for the U.S. healthcare system, I think that’s one role for sure.

(17:02):

I think the other thing that the government can do, and they’re doing it now with this Baxter IV incident, is really looking at ways to import product from overseas, from other factories, in order to bring that product in, to help create some scalability of capacity globally that can be used here in the United States. And I know in some cases the FDA has given clearances to import products. I think there’s still some opportunity to push on that even further, particularly in the area of the irrigation fluids that are really critical at this point, and right now they’re only produced inside of North Cove, other than globally, but it’s the only place that produces those fluids domestically for the Baxter portfolio. And so we really need help there.

Chip Kahn (17:54):

You’ve done a great job of covering the response the GPOs can provide to these kinds of emergencies. Another issue that’s gotten a lot of attention in Washington is the role generally on the pharma side of pharmaceutical benefit managers, and there’s been a lot of discussion about their relationship to pharma and to the customer and the pharmacies, where drugs are provided, and the employers and others who purchase the services for their employees and purchase the drugs for the employees. Obviously on the hospital side, there are a lot of drugs that go into care. How are GPOs different from the PBMs, these pharmacy benefit managers? And how does your role compare to the role of those drugs that get to the counter for the patient in a drug store, versus those drugs that need to be brought to bear for the patients inside of the hospital?

Ed Jones (18:53):

Yeah, I think for HealthTrust, we do a lot of work around our supply base and really looking at redundancy. And I would think that probably most GPOs now are very much focused on expanding the supplier base in the areas of pharmaceuticals versus narrowing the supply base. Now what the GPO is able to do is aggregate a lot of volume. So when you’re awarding maybe to three or four suppliers in a category, you bring enough volume because you’ve aggregated across the healthcare marketplace in a way that’s still very meaningful for that supplier to win a spot. So I think GPOs actually can help expand the supplier base, because you can aggregate that spend and award it accordingly. Now, I think that a big part of that is really understanding how wide the supplier base is, you start to look at your critical drugs, those things that have had chronic shortages over time.

(19:54):

And then the other part of our strategy is, how do we create a secure channel? And so when we make commitments and purchases, we have a secure channel that we’re able to basically run those products through. So it protects the supplies for the drugs for our members, and I think a lot of people are doing the same thing. The other thing that we do is we have failure-to-supply language inside of our contracts as well, and that helps protect our members. But I think ultimately there’s still some work to be done. You have groups like Civica that has done a lot of great work in trying to bring new capacity online. I think you could see things like that can continue to expand inside the healthcare system. But the GPOs, quite honestly, without them, I don’t know how healthcare systems would be able to create enough volume to spread their risk across multiple suppliers. In order for it to be meaningful, they’d have to concentrate their risk. So the smaller you are, the more concentrated your risk is. And so the GPOs have done a lot of work around that.

(20:59):

And I think the other part of that is really understanding clinical equivalencies that you can publish, and when supplies start to run short with one specific drug, you find the equivalent drug or something that’s at least in the same drug class as a different option. And so drugs actually, because of the data and everything, having an NDC code makes it a little easier to identify functional equivalent drugs. But that’s where I think the GPOs have played mostly. I think the other thing about GPOs, maybe different than other segments of the drug ecosystem, is the transparency within GPOs. I mean, we’re very transparent with our pricing models, where we have very strict rules to make sure we follow the safe harbor, we don’t collect anything over 3%. So we make sure that we are within the industry standards from a compliance perspective, and the transparency that comes with it. I think with some PBMs, the transparency, and what the concern is, the transparency may not necessarily be there. There are some relationships where they are transparent, and I think you can’t paint all PBMs with the same brush either, I think you got to be careful about that as well. But I think within the healthcare systems and all the components of it, GPOs are probably one of the most transparent in their business practices.

Chip Kahn (22:27):

Well, that really puts on display, I think the value proposition of GPOs generally. Could you give us a sense for the unique aspects of HealthTrust that maybe differentiates it from some of the other major GPOs in the market? Obviously you’re in the big three or so of GPOs, but you are somewhat different. Could you give us a sense for that?

Ed Jones (22:49):

Yeah, I’d be happy to. I think the one thing, for me, that’s front and center is that we’re owned and operated by healthcare systems. And as a part of that, HCA is the largest healthcare system, they’re the majority owner and the managing partner, and we also manage the supply chain for HCA, which is unique in this space. And what it does for us is that as we make decisions for the GPO, we’re running everything we do through the lens of a healthcare provider. And I think that gives us a very unique perspective because we’re dealing with the challenges day in and day out of what a supply chain executive is facing. And so as long as we’re operating our business based on those principles, I think that makes HealthTrust incredibly unique.

(23:38):

I think the other GPOs, they don’t necessarily aggregate nationally, they do a lot more regional aggregation. And I think they do that because that’s the way they can drive alignment. I think the difference with HealthTrust, we would be the largest aligned collaborative in the marketplace because of the size and scale of our members. We have six of the top 10 IDNs in terms of size, which gives our ability, we always call it speed to scale. So within very few health systems, we have a lot of scale of product, and buys it, the whole membership gets the benefit from us doing that. And I think that really, from my perspective, is really unique about HealthTrust. We always talk about the operator advantage, and that is because we sit in the seat of an operator every day.

Chip Kahn (24:30):

We started out by talking about this issue of mission-critical, that basically you’re getting the goods to the bedside, and that’s so critical. From your perspective as a leader of this organization that makes that happen, to close out, what keeps you up at night? I mean, looking at it from that perspective, what is the thing that you’re maybe most concerned about on an ongoing basis?

Ed Jones (25:02):

Well, right now it’s IV fluids, stating the obvious, that’s the main thing. But I think that this situation is a microcosm, that keeps me up at night, of what’s next. And it’s the crisis that you don’t see coming that really hits you pretty hard. I think COVID was that way, leading to this IV situation. We always knew there was a little bit of risk in the IV fluid market, but felt that the redundancy that a Baxter has built globally, which they didn’t have prior to 2017, they did after 2017, would give them more scalability and flexibility to ship capacity to support demand in event of a crisis. And I think what we’ve learned through this is that even as well-intentioned as their efforts have been, there are still gaps in the supply chain.

(25:59):

So for me, it’s really pressure testing with our team, and particularly our clinical teams, on what else is potentially next in terms of a crisis that would be really, I won’t call it catastrophic, but would be very disruptive for healthcare providers to be able to take care of the patients that come in their emergency rooms every day, whether it’s a stroke patient, whether it’s trauma, whether it’s a cardiac patient or the like, that hospitals are such an important part of the communities, that our job is really to assess that risk and try to make sure that we have a more stable and durable and a resilient supply chain in place. And so for me, that’s probably what I worry about the most, is what’s next. And then that drives our thinking on how do we better prepare our organization to respond to it.

Chip Kahn (26:54):

Thank you so much for joining us on Hospitals in Focus today. And this was a really informative discussion, and I know it’s an area that many people are not really familiar with. And after this, if they listen, I think they’ll learn a lot.

Ed Jones (27:10):

Well, Chip, it’s been a real pleasure, always a pleasure to spend time with you, but certainly spending time on this topic. And so I just want to thank you for the opportunity to do that.

Chip Kahn (27:18):

Great. Thanks a lot.

Narrator (27:23):

Thanks for listening to Hospitals In Focus, from the Federation of American hospitals. Learn more at fah.org. Follow the Federation on social media at FAH Hospitals, and follow Chip at Chip Khan. Please rate, review and subscribe to Hospitals in Focus. Join us next time for more in-depth conversations with healthcare leaders.

Speaker 4 (27:45):

Voxtopica.

As President and CEO of Healthtrust Performance Group, Ed has overall responsibility for a broad set of capabilities focused on supporting healthcare providers. His primary focus is providing the strategic direction and leadership of a comprehensive spend management and performance improvement business based in Nashville, Tennessee. Jones oversees all dimensions of a $52B portfolio; directs all consulting, managed services and outsourced relationships/alliances, including accountability for HCA Healthcare supply-chain, sourcing contingent labor, facility management and clinical education.

Jones’ leadership encompasses several HealthTrust/HCA Healthcare business ventures that strengthen provider performance and competitive advantage, including:

• HealthTrust Workforce Solutions – The clinical labor staffing and consulting company including a proprietary program called StaRN (extensive training program for all new nurses)
• HCA Healthcare Center for Clinical Advancement – Responsible for providing continual education for over 90,000 nurses at HCA Healthcare through a team of approximately 800+ educators and several simulation labs
• HealthTrust Europe, which provides sourcing and supply chain services to HCA U.K. and sourcing services to 39 provider trusts in the U.K.
• HealthTrust Global Sourcing Office in Shanghai, China
• Galen College of Nursing
• Group purchasing organization that delivers clinically integrated solutions and savings across all sites of care

He has 40 years of experience within the Healthcare industry, serving in his current role for the last 11 years and serving previously as the Chief Operating Officer of HealthTrust Performance Group with responsibility for strategic sourcing, clinical operations, custom contracting, supplier diversity, and regional operations. Prior to that, Jones served in several leadership positions within HCA Healthcare for 20 years following front-line roles at a hospital for seven years.

Jones is a founding board member of the Health Sector Supply Chain Research Consortium, and a member and subcommittee leader of the Federation of American Hospitals. He also serves on the board of Galen College of Nursing and is the chairman of the finance committee. Jones also serves on the board of CoreTrust. Previously, he served as board chair on the Healthcare Supply Chain Association (HSCA). He holds a Bachelor of Science degree from Virginia Commonwealth University.